Phil Anthropy

Debunking the "Decline of the Middle Class" Myth

It disappoints, but doesn't surprise, that choosing statistics selectively is still the most popular hobby of economists and analysts. It is absolutely clear that if the super rich become every super richer, everybody's boat rises with the tide (assuming the super rich don't trickle all their money down overseas and make the foreigners rich rathern than their American colleagues). The question is whether the rising tide in the middle class will really float a boat, or is just a wave in a bathtub.

Regardless if one's income increases by 1% per year in constant dollar terms, it decreases by several percent in terms of purchasing power against various other measures: healthcare, education, food, gasoline, housing (until the last few years), and various foreign currencies. The middle class is much better off each year in terms of dollars earned, and much worse off in terms of purchasing power.

To those who would tout this as a victory for the capitalist system, I can only say: I don't think so.

There is nothing wrong with the rich getting richer, and they will always get richer than the middle class or the poor, because that's what the "magic of compounding" does. An oak tree adds more wood each year than a sapling. Nothing can stop it. Whoever got here first-est with the most-est does better than the laggards, for a long time, with few exceptions.

The problem is that the free market is being distorted. Economies of scale would dictate that as universities grow, the courses should become cheaper in constant dollar terms. That's not happening. As healthcare becomes more automated and efficient, prices should go down, but they don't. In a free market system, estate attorneys should compete, lowering hourly fees. Instead, some states pass "acceptable" fees as part of their laws. What we have in American is a modified guild system, with barriers to entry and high pay for the anointed. This is fine, but those fees are rising much faster than per capita income, in terms of percentage.

By showing a limited selection of pretty graphs, one can gain applause for the artwork, but a more correct analysis would include a broad range of other measures and statistics, to give a well-rounded picture of economic activity and the implications of the trends.

When renowned economists can come on CNBC and vigorously disagree, it's clear that the "dismal science" is well named. Economics is a field involving nonlinearities and "butterfly effects," boundary conditions and catastrophic discontinuities, interacting rates in complex differential equation models, human behavior and psychology, and potential manipulations on a scale unparalleled in history.

However, if data is going to be presented and conclusions drawn, it is better to paint all four walls of the barn and not just the facade, if we're going to have a good picture of what's going on. Please excuse the mixed metaphor. Given our current economic climate I think that barn door was closed after the financial horse was gone.